Office of Planning & Budgeting

March 22, 2023

March Revenue Forecast Projections Revised Downward for Upcoming Biennium

The Washington State Economic and Revenue Forecast Council (ERFC) released its March revenue forecast on Monday, March 20, 2023. In November, we highlighted revenue projections for the 2023-25 biennium and summarized experts’ cautions regarding slowing economic growth. These concerns were associated with rising inflation and interest rates, in addition to geopolitical factors including the war in Ukraine and ongoing supply chain disruptions.

This month, the forecast projects slowing growth for the remainder of the current biennium with revenue projections revised downward for the 2023-25 and 2025-27 biennia. The Seattle-area consumer price inflation continued to exceed the national average, with the seasonally adjusted CPI rising 8.1% compared to the 6.0% increase in the U.S. City Average index. Given the continued high rate of inflation, the forecast assumes the Federal Reserve will raise interest rates to a range of 5.25% – 5.5% by June 2023. However, there is uncertainty regarding this assumption, as the Federal Reserve may choose to delay or reduce any rate hikes given the recent bank failures. Additionally, technology sector layoffs,  debate over raising the federal debt ceiling, and the Ukraine-Russia conflict continue to pose significant risks to the economy.

Given these challenges, the forecast projects that state revenue growth will continue to slow, increasing by only $194 million in the 2021-23 biennium over the November forecast. Revenue is then expected to decrease by $483 million in the 2023-25 biennium and decrease by $541 million for the 2025-27 biennium.

The changes from the previous forecast are driven by recent Real Estate Excise Tax (REET) collections, which were much lower than anticipated due to rising mortgage rates and slowing construction activity. Additionally, Revenue Act collections, which include the state sales tax and business and occupation tax, are slowing as is the growth in personal income.

The forecast does note some positive economic trends, including the continued strength of the job market as well as relatively strong revenue collections outside REET and the retail sector.

More background on the state revenue forecasts can be accessed on our website.

Near General Fund-State

Below is a summary of the total preliminary and projected Near General Fund-State (GF-S) revenue for each biennium. Though the forecast has been revised downward, overall revenue is still projected to grow each biennium.

  • $64.15 billion for the 2021-23 biennium, 20.7% over the 2019-21 biennium.
  • $65.70 billion for the 2023-25 biennium, 2.4% over the expected 2021-23 biennium.
  • $70.34 billion for the 2025-27 biennium, 7.1% over the expected 2023-25 biennium.

Some context behind the numbers for Near GF-S accounts from which the University receives funding:

  • Forecasted revenue dedicated to the Workforce Education Investment Account (WEIA) has decreased by $3 million in the 2021-23 biennium, $9 million in the 2023-25 biennium, and $11 million in the 2025-27 biennium. Forecasted WEIA revenue is now $748 million for the 2021-23 biennium, $784 million for the 2023-25 biennium, and $833 million for the 2025-27 biennium.
  • The forecast of Education Legacy Trust Account (ELTA) revenue was increased by $74 million in the 2021-23 biennium. Forecasted ELTA revenue is now over $2.12 billion for the 2021-23 biennium, $2.01 billion for the 2023-25 biennium, and $2.29 billion for the 2025-27 biennium.

This latest revenue forecast was released as the Washington State House of Representatives and Senate prepare to release their proposed operating, capital, and transportation budgets for the 2023-25 biennium. These are all expected to be released by the end of March, with final compromise budgets approved by the end of the legislative session on or before April 23.

The next state revenue forecast will be released in June 2023. Stay tuned to the OPBlog for updates on the 2023 legislative session and the upcoming 2023-25 state budget.